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Bank Indonesia (BI) is expected to hike its benchmark interest rate by 25 basis points to 5.00 percent by the Q3 this year, on expectations of a strong growth in the country’s gross domestic product (GDP).
Also, the central bank has been building up its foreign reserves and will continue to do so this year. The USD 10 billion worth of foreign reserves accumulated in 2016 was equivalent to the total net foreign inflows seen in equities and IDgov bonds for the year.
"We reckon that a 25bps rate hike is still likely later this year. Real GDP growth may accelerate to 5.3 percent this year from 5 percent in 2016, into the upper half of BI’s 5-5.4 percent target range. The upward trend in inflation is intact. Maintaining rupiah stability will be a priority this year because of rising US interest rates," DBS Group Research commented one of its recent research report.
